Tuesday, February 18, 2014

It had entered into a rig-construction contract with PPL Shipyard Pte Ltd to build a third jack-up rig for US$211.5mil (RM653.5mil). Perisai will need to pay 10% by end 2014 whle the remaining 80% will be paid upon delivery.

The contract price includes certain enhancements that had been undertaken with two rigs – Perisai Pacific 101 and Perisai Pacific 102. The contract price is payable in two portions with the initial 20% payable upfront and the balance 80% upon delivery (expected to be by the third quarter of 2016).

The third jack-up rig ordered as it will give Perisai further exposure in the drilling rig sector, which is in the uptrend cycle.

Post the acquisition of this rig, Perisai will own three jack-up rigs.

It will not have any issues with the 20% payment upfront, but it will not be surprised if the company is to look for additional equity funding, moving ahead.

The delivery of the jack-up rig is only in 2016. The earnings accretion from the new rig would only be in 2016.

Perisai is set to receive two jack-up rigs (in mid-2014 and mid-2015), which should be able to secure contracts given that there are at least 17 rig contracts that are expiring from mid-2013 to 2015.

Over 40 jack-up rig contracts in South-East Asia will expire between mid-2013 and 2015. This, coupled with Petronas’ localisation policy, which calls for the use of Malaysian-flagged vessels, should ensure a healthy pipeline of drilling-related jobs for contractors including Coastal Contracts, Perisai Petroleum Teknologi Bhd and UMW Oil & Gas Corp Bhd (UMW-OG).

A typical jack-up drilling rig has a useful life of 25 years without major upgrades. In 2012, some 90% of the global fleet was at least 26 years old, setting the stage for the start of the replacement cycle.

To recap, Perisai had placed an order with SembCorp Marine to acquire a high spec jack up rig for rm678 million to be delivered by July 2014.

While Perisai is close to securing its first jack up rig contract, sources say that the charter rates could be much lower than original charter rate of USD190000 per day as the contract may be longer in tenure. Assuming a charter rate of USD150000 per day, estimate that the rig contract will lift its earnings by rm19 million.

Industry observers are encouraged by the charter commencement of Perisai's FPSO vessel after a delay since late July 2013. It marks the company's entry into the FPSO segment and its transformation from a bareboat charterer to an operator.

Early contributions from the vessel will be reflected in its results for the fourth quarter of FY2013 ended Dec 31, reducing the earnings vacuum caused by two idle assets ... mobile offshore production unit and derrick pipelay barge.

Perisai is currently (Jan 2014) vying for at least two potential contracts for its MOPU.

Also do not discount the possibility of an equity fund raising exercise in 2014 given the strength of Perisai's share price. The company needs to fork out some rm500 million in 2014 to pay for its first jack up rig, to be delivered towards the end of second quarter 2014 and an additional rm500 million for its second jack up rig in 2015.

Anticipate weaker sequential earnings in 4QFY2013 due to the lack of charter income for its MOPU and derrick pipelay barge although the weakness will be partially offset by maiden contributions from its new FPSO vessel and its offshore support vessels.

For 2015, assume full year earnings contributions from its offshore vessels, FPSO, MOPU, derrick pipelay barge and first jack up rig.